When deciding between starting a business from scratch or buying an existing one, there are several factors to consider. Let’s explore the advantages and disadvantages of each approach:
- Advantages of Buying a Business:
- Immediate Cash Flow: Purchasing an established business means you inherit existing revenue streams.
- Avoid Growing Pains: You skip the challenges of starting from scratch.
- Existing Plans and Procedures: The business already has established policies and procedures.
- Financial History: Easier financing due to a track record.
- Goodwill and Clientele: Benefit from the existing reputation and customer base.
- Cost Savings: Equipment, furnishings, and renovations are often cheaper than starting anew.
- Disadvantages of Buying a Business:
- Not All Businesses Are Viable: Some businesses may be overpriced, unprofitable, or underperforming.
- Potential Upgrades Needed: Equipment and facilities might require improvements.
- Dependent on Previous Owner’s Goodwill: The business’s reputation may be tied to the previous owner.
- Past Financials Don’t Guarantee Future Success: Historical performance doesn’t guarantee future results.
- Advantages of Starting a Business:
- Customization: You build the business according to your vision.
- Learning Experience: You learn everything as you go.
- Execution Matters: Your success depends on your execution.
- No Legacy Issues: No existing problems to deal with.
- Disadvantages of Starting a Business:
- High Initial Effort: Starting from scratch requires significant time and effort.
- Higher Initial Costs: Equipment, stock, and setup expenses can be substantial.
- No Goodwill or Clientele: You start with a clean slate.
- Risk of Mistakes: New businesses often face costly mistakes.
- Correct Valuation:
- A simple method is to multiply the owner’s actual earnings by a factor (e.g., 2 or 3).
- Actual earnings include pre-tax profits, owner’s salary, and personal expenses related to the business.
- Consult accountants and business brokers for accurate valuation.
- Buying a Franchise:
- Franchises offer support but reduce your decision-making freedom.
- Approval from the franchise headquarters is required for both buying and selling.
Remember that your passion, available capital, and long-term goals should guide your decision. Whether you start from scratch or buy an existing business, thorough research and professional advice are essential.
